Question

During which phase of the business cycle do stock prices increase rapidly?

a. recovery

b. recession

c. boom

d. depression

Answer 1

Correct Answer is A, Recovery.

During the Recovery Phase of the business cycle, the stock prices increase rapidly.

When there is a recovery phase in a business cycle, most organizations undergo massive changes in the organization. They may expand their business line, introduce new products, upgrade their systems etc. These all changes contribute towards the demand of their company's shares, thus increasing the value of stocks. The price of the stocks increases rapidly due to these changes within the business because stock holders predict that this company is going to flourish in the coming days. They show their trust towards the company. This all is done in the recovery phase.

Answer 2

Stock prices increase rapidly during the recovery phase of the business cycle since this is the time that companies plan to either undergo renovation programs to reintroduce themselves to the market or make additional investments.